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Finlayson & Peacock Op-Ed: More fiscal discipline needed down at your local city hall (Business in Vancouver)

Posted Jan 13, 2017

Added together, the 21 municipalities that make up Metro Vancouver spent $3.74 billion on operations in 2015. This is separate from their outlays on infrastructure and other capital projects; nor does it include spending by the regional district.

In B.C., municipalities are responsible for delivering a wide array of services, including fire and police protection, garbage and recycling, water and sewer services, parks and recreation and roadworks. In a region that’s home to 2.5 million people, it is not surprising that local governments must earmark sizable sums to supply these services. What is striking, however, is the pace at which such expenditures have been growing in Metro Vancouver. As documented in a recent Business Council of British Columbia report (www.bcbc.com), over the past decade total municipal spending in the Metro Vancouver region jumped by a hefty 67%. Spending growth has slowed in the last few years, but the magnitude of the increase since 2005 stands out.

The Lower Mainland’s population has climbed steadily, putting upward pressure on municipal budgets. But while the region’s population expanded by 15% between 2005 and 2015, local government spending advanced at a much faster clip. Doing the math shows that per-person outlays by Metro area municipalities collectively soared by 45% over the past 10 years. Meanwhile, inflation, measured by the consumer price index, was up by 13% over the period in question. On a per-person basis, municipal spending in Metro Vancouver has been rising more than three times faster than the average rate of inflation.

A 10-year time span is long enough to witness some changes in spending patterns. For Metro taxpayers, there is some good news: municipal spending growth has moderated in recent years. Between 2010 and 2015, overall municipal government spending across Metro Vancouver increased by 21%. While hardly a sign of fiscal austerity, this was down from the 39% spending surge recorded in the half-decade ending in 2010. The deceleration in spending growth is more evident when stated in per-person terms. This shows municipal government outlays in Metro Vancouver rising by 28% per resident from 2005 to 2010, and then by 13% in the most recent five-year period.

Still, the growth of municipal expenditures has continued to outpace inflation. Adjusted for inflation, per-capita municipal expenditures across Metro Vancouver increased by roughly 7% between 2010 and 2015. Metro residents who did not manage to secure wage or salary gains of a similar magnitude have been forced to allocate a larger fraction of their income to cover their local property tax bills.

One can debate whether Metro Vancouver residents have experienced service improvements that match the scale of the recorded increases in municipal spending. However, with property assessments having just been sent out, it’s a sure bet that residents and businesses are anxiously waiting to find out how much they must pay to cover the cost of local government services.

What we find particularly disconcerting is the disjunction in the trends in spending between the provincial government and Lower Mainland municipalities. In the case of the province, increases in operating outlays have been closely aligned with population growth and inflation. As noted above, most Vancouver-area municipalities have been less successful in controlling spending. As a result, from 2005 to 2015, real per-capita spending by the B.C. government rose at just half the pace seen in Metro Vancouver municipalities. This is a remarkable finding considering that the province is responsible for big-ticket programs in areas like health, education and social services.

An important reason for the provincial-municipal spending discrepancy lies in labour costs: while the B.C. government has aggressively contained its payroll costs, most local governments have not. Full-time-equivalent staff numbers have increased markedly in most Metro-area municipalities. And collective agreements reached with unions in the municipal domain have often provided for more generous settlements than at the provincial level.

To our mind, the lesson is clear: looking ahead, local governments across the Lower Mainland should be following the province’s lead by showing a greater and more consistent commitment to fiscal discipline. •

Jock Finlayson is the Business Council of British Columbia’s executive vice-president and chief policy officer; Ken Peacock is the council’s chief economist.